Rupee Closes Near Three-Month Highs On Lower Oil Prices
The turn in oil prices, along with a resumption of foreign flows into Indian debt, have helped the rupee rebound to near three-month highs.
The rupee closed at 70.69 against the U.S. dollar on Thursday, up 1 percent over its previous close. The currency has gained more than 4 percent in November, after hitting a record low just a month ago in October.
“The rupee has taken a cue from lower oil prices. Brent at $63 per barrel brings huge relief to India’s current account deficit,” said K. Harihar, treasurer at FirstRand Bank. Harihar added that falling oil prices and the expectation of lower inflation have also made Indian bonds attractive to foreign investors, who have pumped in than Rs 5000 crore in into the Indian debt markets so far this month. “While that may not be a huge number, its a reversal of months of outflows,” Harihar added.
Rising oil prices had raised concerns that India’s current account deficit may widen towards 3 percent of GDP in the current financial year. This, at a time, when portfolio outflows from the debt and equity markets had picked up. Together, the two could have meant a negative balance of payments (BoP) for the year.
This pushed the rupee to a record low below 74 against the U.S. dollar. However, the rapid reversal in oil prices has meant a turn in direction for currencies of most oil importing nations, including India.
Still, not all concerns have abated.
Apart from a higher oil import bill, India’s non-oil non-gold imports have also been rising while export growth has been modest. This could limit the gains on the rupee.
“There are still issues to worry about. There are state and general elections coming up and at a macro level, we are still not completely out of the woods,” cautioned Ananth Nararayan, associate professor at SP Jain Institute.